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Wealth Preservation
Spring 2008
There
are a few changes for 2008 and beyond that you should be
aware of as it pertains to your wealth accumulation and
preservation.
|
Contributions Limits to Retirement Plans |
| |
2007 |
2008 |
| IRA’s
under age 50 |
$4,000 |
$5,000 |
| IRA’s
age 50 and older |
$5,000
|
$6,000 |
| Simple
Plans under age 50 |
$10,500 |
$10,500 |
| Simple
Plans age 50 and older |
$13,000 |
$13,000 |
| 401(k)
Deferral under age 50 |
$15,500 |
$15,500 |
| 401(k)
Deferral age 50 and older |
$20,500 |
$20,500 |
| SEP IRA
& Defined Contribution Plans |
$45,000 |
$46,000 |
| |
|
|
| Other
Limits |
|
|
| Estate
Tax Exemption |
$2,000,000 |
$2,000,000 |
| Gift Tax
Exclusion per donor |
$12,000 |
$12,000 |
| |
|
|
| Social
Security Wage Ceiling |
$97,500 |
$102,000 |
| All
wages are subject to Medicare tax |
|
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Estate Tax Matters
The Estate Tax Exemption and
Generation Skipping Trust Exemption remain at $2,000,000 for
2008. The Gift tax remains at $1,000,000. In 2009 The Estate
Tax Exemption and Generation Skipping Trust Exemption go to
$3,500,000, in 2010 they are repealed.
Here is a chart of the
progression of changes under the present regulations.
| Year |
|
Estate and GST Tax Exemptions |
|
Gift Tax Exemption |
|
Highest estate GST and
gift tax rate |
| 2007 |
|
$ 2
million |
|
$ 1 million |
|
45% |
| 2008 |
|
$ 2
million |
|
$ 1 million |
|
45% |
| 2009 |
|
$ 3.5
million |
|
$ 1 million |
|
45% |
| 2010 |
|
(repealed) |
|
$ 1 million |
|
35% |
| 2011 |
|
$ 1
million |
|
$ 1 million |
|
55% |
It is expected that before
the 2010 repeal, action will be taken in Washington to most
likely set a new exemption amount. Both Hillary Clinton and
Barrack Obama have talked about making the 2009 rate of
$3,500,000 permanent and John McCain has mentioned
$10,000,000. Right now this is all speculation and is
nothing that can be counted on for estate planning. We
recommend that estate plans be kept up to date.
Annual gifting, with a limit of 12k for 2008, is one of the
best ways to reduce an estate. The limit of $12,000 to as
many people as you wish and is $24,000 if husband and wife
participate together in the gift. There is no reporting
necessary as this gift comes under the annual exclusion so
it is simple and easy.
If you want to retain control over the funds and if you fear
that your grandchild or any recipient will not use the funds
wisely, consider a Crummey trust. Because of a temporary
withdrawal right, the gift will qualify for the annual
exclusion without going outright to the recipient. As with
any trust, you can put restrictions on when and how the
money will ultimately be received by the beneficiaries.
Retirement Plan News
The opportunity to contribute up to $100,000 to charity from
your IRA if you are over 70 ½ has been continued for 2008.
This can be a more effective way tax wise to contribute to
charity, particularly if you are subject to a phase out of
itemized deductions because your AGI is over $160,000. Check
with your accountant to see if it is worth doing.
Another tax saving way to give to charity is with highly
appreciated assets. Charities pay no capital gains tax on
the sale of your asset.
Roth IRA’s
If you are in a position to fund a Roth IRA, definitely
consider it. It makes sense in a majority of cases, but not
all. The younger you are, the more sense it makes. Though
you pay the taxes now, the account grows tax free,
withdrawals are tax free and there are no minimum required
distributions. Unfortunately, there is a limit to income you
can earn and still fund a Roth as indicated below.
| Roth
IRA Phase-Out Range & Limits |
| Year |
Single |
Married Filing Jointly |
| 2007 |
$99,000
- $114,000 |
$156,000
- $166,000 |
| 2007 |
$101,000
- $116,000 |
$159,000
- $169,000 |
The adjusted income limit (AGI)
to convert your Traditional IRA to a Roth IRA is $100,000.
In 2010 that limit goes away. There is software available to
assist in making the decision whether it makes sense to
convert. There are many variables that go into the equation
and we have found there are only limited applications where
it makes sense to convert.
If you have any questions on any topics discussed, please
give us a call.
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